PLR 200421008: IRA owner receives a rollover waiver after custodian error

Plain-English summary

An IRA owner asked for a partial distribution, but an employee of the custodian mistakenly marked a form for a full distribution. The custodian moved the IRA balance into the owner's regular brokerage account. The owner did not authorize that transaction and left the assets untouched, learning of the error after the normal 60-day rollover period had expired. The IRS waived that deadline under section 408(d)(3)(I) for the specified securities amount. The owner had 60 days from the letter to contribute those securities to one or more IRAs, subject to the other rollover rules.

Ruling snapshot

• Question: Could the owner return securities to an IRA after a custodian's error caused a late rollover?
• Outcome: Approved, with a new 60-day contribution period and the other rollover requirements still applying.
• Key authorities: IRC § 408(d)(3)(I); Rev. Proc. 2003-16.

Full text (IRS public release)

DEPARTMENT OF THE TREASURY
INTERNAL REVENUE SERVICE

WASHINGTON, D.C. 20224 200421008

TAX EXEMPT AND
GOVERNMENT ENTITIES
DIVISION

FEB 27 2004
Uniform Issue List: 408.03-00

Legend:

Company A =
Document B =
Account C =
Amount D =

Amount E =
Amount F =

Employee G =
Employee H =

Dear

This is in response to a ruling request submitted by you on * , ** in

which you request a waiver of the 60-day rollover requirement contained in section 408(d)(3) of the Internal Revenue Code. The following facts and representations have been submitted in support of your request.

You maintained an individual retirement account (IRA) with Company A. In early
** you requested a partial distribution from your IRA in a conversation with Employee G, who has acknowledged that he understood clearly your request. On *, 2002, Employee H consulted with Employee G and executed Document B on your behalf. However, Employee H checked a box on Document B that called for the termination and total distribution of your IRA. Employee H then

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carried out this transaction by transferring the balance of your IRA, Amount D (consisting of cash and securities), to your non-IRA brokerage account, Account C, also held by Company A. You did not sign Document B but you relied on Company A’s employees to carry out this transaction as you requested. Although your instructions regarding your IRA were clear to you and to Employee G, there was nonetheless confusion and miscommunication between Employees G and H that resulted in the mistake or error. At no time did you authorize or intend to authorize a termination of your IRA and a distribution of Amount D from your IRA into Account C. After the 60-day rollover period expired, you received a Form 1099-R concerning the distribution and at that time you contacted Employee G concerning the mistake and erroneous distribution.

Based on the above facts and representations, you request that the Service waive the 60-day rollover requirement with respect to the distribution of Amount F from your IRA because the failure to waive such requirement would be against equity or good conscience, and allow you to return Amount F to an IRA restoring the tax deferred status of Amount F.

Section 408(d)(1) of the Code provides that, except as otherwise provided in section 408(d), any amount paid or distributed out of an IRA shall be included in gross income by the payee or distributee, as the case may be, in the manner provided under section 72 of the Code.

Section 408(d)(3) of the Code defines, and provides the rules applicable to IRA rollovers.

Section 408(d)(3)(A) of the Code provides that section 408(d)(1) of the Code does not apply to any amount paid or distributed out of an IRA to the individual for whose benefit the IRA is maintained if (i) the entire amount received (including money or any other property) is paid into an IRA for the benefit of such individual not later than the 60th day after the day on which the individual receives the payment or distribution; or (ii) the entire amount received (including money or any other property) is paid into an eligible retirement plan (other than an IRA) for the benefit of such individual not later than the 60th day after the date on which the payment or distribution is received, except that the maximum amount which may be paid into such plan may not exceed the portion of the amount received which is includible in gross income( determined without regard to section 408(d)(3)).

Section 408(d)(3)(B) of the Code provides that section 408(d)(3) does not apply to any amount described in section 408(d)(3)(A)(i) received by an individual from an IRA if at any time during the 1-year period ending on the day of such receipt such individual received any other amount described in section 408(d)(3)(A)(i) from an

IRA which was not includible in gross income because of the application of section 408(d)(3).

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Section 408(d)(3)(D) of the Code provides a similar 60-day rollover period for partial rollovers.

Section 408(d)(3)(I) of the Code provides that the Secretary of the Treasury may waive the 60-day requirement under sections 408(d)(3)(A) and (D) of the Code where the failure to waive such requirement would be against equity or good conscience, including casualty, disaster, or other events beyond the reasonable control of the individual subject to such requirement. Only distributions that occurred after December 31, 2001, are eligible for the waiver under section 408(d)(3)(I) of the Code.

Revenue Procedure 2003-16, 2003-4 I.R.B. 359, provides that in determining whether to grant a waiver of the 60-day rollover requirement pursuant to section 408(d)(3)(I), the Service will consider all relevant facts and circumstances, including: (1) errors committed by a financial institution; (2) inability to complete a rollover due to death, disability, hospitalization, incarceration, restrictions imposed by a foreign country or postal error; (3) the use of the amount distributed (for example, in the case of payment by check, whether the check was cashed); and (4) the time elapsed since the distribution occurred.

The information you presented indicates that errors made and acknowledged by employees of Company A resulted in a termination and total distribution of your IRA, Amount D. You requested only a partial distribution, Amount E, and, through no fault of your own but due to the employees’ mistakes, the transaction was not carried out in accordance with your intent. The IRA distribution was transferred into a non-IRA account where it has remained untouched by you and has not been used for any other purpose since the distribution. These facts and circumstances indicate that you could not reasonably satisfy the requirement that Amount F be transferred to an IRA within 60 days of the distribution from your IRA, and the failure to waive the 60-day requirement would be against equity and good conscience.

Therefore, pursuant to section 408(d)(3)(I) of the Code, the Service hereby waives the 60-day rollover requirement with respect to the distribution of Amount F. You are granted a period of 60 days from the issuance of this ruling letter to contribute Amount F, which consists solely of securities, to one or more IRAs. Provided all other requirements of section 408(d)(3) of the Code, except the 60-day rollover requirement, are met with respect to such contribution, this amount will be considered a rollover contribution within the meaning of section 408(d)(3) of the Code.

No opinion is expressed as to the tax treatment of the transaction described herein under the provisions of any other section of either the Code or regulations that may be applicable hereto.

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This ruling is directed solely to the taxpayer who requested it. Section 6110(k)(3) of the Code provides that it may not be used or cited as precedent.

If you have any questions regarding this ruling, you may contact
[illegible] at

Sincerely yours,

Donzell Littlejohn, Manager
Employee Plans Technical Group 4

Enclosures:

Notice of Intention to Disclose
Deleted copy of letter